Time Warner President Richard Parsons said yesterday, “We are continuing to work on” a new deal with EMI Group – and said the two companies have until Jan. 31 to talk exclusively with each other.

After the end of January, EMI is free to explore other offers.

“We were very close,” Parsons said of the intense negotiations with the European Commission over regulatory approval. After weeks of sparring with the European Union’s chief antitrust regulator, Mario Monti, and his merger task force, Warner and EMI reluctantly agreed to withdraw their $20 billion deal to combine their music operations.

The abandoned deal, however, did not please Time Warner Chairman and CEO Jerry Levin.

“I hate to lose,” Levin said yesterday.

Parsons said the European Commission differs from the American regulators in that it operates around “an iron-bound schedule” and it must “market test” all proposals and undertakings given by the merging parties.

By the time Warner confronted the regulator’s main concerns – “about the consolidation of the music business from five major labels to four and about our position in publishing” – the companies ran out of time, Parsons said.

“The commission invited us to resubmit. We are now retracing our own steps,” Parsons went on, explaining that Time Warner will also look to “make clear the deal still makes sense.”

“The deal is not completely closed,” said Jessica Reif Cohen, an analyst at Merrill Lynch Global Securities. “It’s still a great combination with a great management team.”

Indeed, Parsons’ comments come as Warner Music Group posted strong third-quarter earnings of $87 million, up 10 percent from last year’s $79 million. The upturn in Warner’s bottom line, which has been ailing for several years, could signal a return to glory for the once top-ranked label. EMI, on the other hand, is still struggling with its last-place position in the U.S. market – and could prove to be more of a bother than a bonanza for the American media giant.

Time Warner must still concentrate on getting its merger with America Online through all regulatory hurdles. It is believed the company wants to clear AOL Time Warner before re-embarking on Warner EMI.

Levin said yesterday that he “is not surprised at the intensity of the lobbying effort” against the planned union and added he is “comfortable we’re at the point we should be at.”

AOL Time Warner is “not like CBS/Viacom or Vivendi Universal,” Levin went on. “This is a profound thing which causes people to think about the future ways consumers are going to get material.”

Levin’s comments came after the company reported third quarter profits that were unchanged from the year before, excluding one-time gains. The company made seven cents per share as revenue rose to $6.873 billion from $6.723 billion.

While the earnings beat estimates of four cents a share, the revenue number was lower than the $7.28 billion Wall Street expected.

Also reporting earnings yesterday was parent-to-be AOL, which said fiscal first-quarter profit almost doubled as it gained 1.4 million subscribers and advertising on its services increased.

Net income rose to $345 million, or 13 cents a share, from $181 million, or 7 cents a share, a year ago. Revenue rose 34 percent to $1.98 billion from $1.48 billion. Analysts expected the company to record about $2 billion in revenue.

Shares of both companies ended the day up. Time Warner rose $3.74 to $69.25, despite a steep drop in the Dow Jones industrial average. It had dropped to a 52-week low of $57.51 earlier in the day.

AOL rose $3.31 to $46.91 after hitting its own low of $37 earlier in the day.